Direct Edge to Seek Brazil Exchange License in 'Weeks'

Direct Edge Holdings plans to apply for a license to operate a Brazilian exchange in "a matter of weeks."

SAO PAULO -- Direct Edge Holdings LLC, the
fourth-largest U.S. stock exchange operator, plans to apply for
a license to operate a Brazilian exchange in "a matter of weeks,"
a senior executive told Reuters on Tuesday.

If Brazilian regulators approve the application within the
legal 180-day limit, that could give BM&FBovespa SA,
Brazil's sole financial exchange operator, its first major
competitor in Latin America's largest equity market.

Executives at the Jersey City, New Jersey-based firm are
"putting the final touches" to the application, said Anthony
Barchetto, Direct Edge's head of strategy. The company still
believes that the best option for clearing, registration and
custody services would be renting them from BM&FBovespa.

The plan is part of Direct Edge's efforts to grow outside
its home turf in markets with high growth potential and robust
trading volumes. News of Direct Edge's plans drove shares of
BM&FBovespa down as much as 2.7 percent as the application
fanned concern the S?o Paulo-based exchange operator's dominant
position could be challenged.

"We are very glad with the CVM's willingness to accept our
application," Barchetto said in a phone interview, reiterating
that Direct Edge plans to base its Brazilian operations in Rio
de Janeiro, the country's second-largest city.

Under current rules, BM&FBovespa enjoys a near monopoly on
all trading, clearing and settlement services for most
locally-traded shares. While depositary receipts in New York or
other global financial hubs provide a possible alternative to
trading on BM&FBovespa, many investors cannot trade them due to
legal or tax restrictions.

Furthermore, there are no legal rules in place requiring
BM&FBovespa to sell or rent clearing services - a strategic part
of any trading business requiring a huge investment of time and
money.

Chief Executive William O'Brien said in July that Direct
Edge does not rule out working with separate trading and
post-trading platforms in case talks with BM&FBovespa over
sharing clearing services fail.

An independent study on competition in the market structure
industry commissioned by the CVM last year found that lack of
competition is unlikely to cause harm in the medium-term. It
proposed a self-imposed regime of price monitoring and
benchmarking by BM&FBovespa, incentives to improve access to
BM&FBovespa's clearing, and ways to enhance market supervision
and regulation.

Direct Edge is owned by a consortium that includes the
International Securities Exchange, Citadel Derivatives Group,
Goldman Sachs Group Inc, and JPMorgan Chase & Co.